The Intelligent Investor - Benjamin Graham

The Intelligent Investor - Benjamin Graham

Check this summary of the stock market bible and become an intelligent investor!

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If you don't know how to invest in stocks but are passionate about the financial market, then the book "The Intelligent Investor", written by Benjamin Graham, was made for you!

Known as the stock market bible, this book is a complete material for all types of investors and offers practical tips on how to become an intelligent investor, under the principles of the "father of value investing".

According to Graham, investing requires a lot of discipline and consistency to deal with uncertainties, besides market knowledge and financial education.

Do you want to become a successful investor? This summary can help you!

The book "The Intelligent Investor"

"The Intelligent Investor" is a classic business book, hailed as "by far the best book on investing ever written", by Warren Buffet, one of the biggest investors in the world.

The author Benjamin Graham explains how to invest in stocks and the characteristics of an investor who knows how to play on the stock exchange: discipline and consistency.

This book was originally published in 1973 and underwent changes in accordance with the world of business until it reached the edition entitled "The Intelligent Investor", published in 2003.

Who was Benjamin Graham?

Benjamin Graham was and remains one of the most important names in the corporate world. Born in 1894, Benjamin was an economist and investor widely known as the "father of value investing".

His childhood, however, had no perks. Growing up in extreme poverty, Graham went through several challenges before becoming rich. Graduated from Columbia University, he opened his first firm at age 32 and began teaching at the university two years later.

His views on the financial market are highly valued today by executives and entrepreneurs. He went through the New York Stock Market Crash in 1929 (The Great Depression) and left records with what he learned from his mistakes for the generations ahead of him.

Why should I read it?

The book "The Intelligent Investor" is suitable for executives and corporate entrepreneurs.

Also, Benjamin Graham's works are very influential in the financial market, requiring students of Business, Economics, and anyone who wants to be part of the business world to read.

What are the key points of the book "The Intelligent Investor"?

  • What is the decision to invest;
  • You shouldn't be investing in short-term stocks;
  • The success of an investment depends solely on your behavior;
  • Advisers can help you make difficult decisions and get out of trouble;
  • Why you should investing in index funds.

In this summary, we will show Benjamin's views on the characteristics of an intelligent investor - defensive and enterprising - and how you can improve within the financial marketplace. Let's go!

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[Book Summary] The Intelligent Investor - Benjamin Graham

When investing

An investor should pay attention to the following three steps when investing:

To invest, according to the author Benjamin Graham, you should feel comfortable acquiring the stock and caring less about the "share price".

Thinking about future returns is essential to know how to invest. As it is presented in the book "The Intelligent Investor", there are three factors that make up the stock market:

  • Real growth;
  • Inflationary growth;
  • Speculative growth.

But, be careful! Talking about the history of the American market, Graham says that the smart investor should not, under any circumstances, try to predict the future based on the past.

The past, in turn, only shows how the future can surprise us. So, you should reduce your expectations and seek to be more realistic in an optimistic way.

The defensive investor

The author Benjamin Graham says there are two types of intelligent investors: the enterprising and the defensive. Let's talk about the defensive first.

If you are a person who doesn't like to think about money, is simplistic, and often feels pressured, perhaps the defensive approach is right for you.

But what is this approach? When it comes to investing, the defensive person seeks to establish a fully automatic stock regime that requires no effort at all.

The first step in being a defensive investor is to decide how much to invest in high-grade common stocks and high-grade bonds. Also, it is important to give up "meager earnings", such as short-term accounts for more profitable alternatives, like Treasury securities and saving bonds.

The author warns in the book "The Intelligent Investor" people who want to invest without having done their homework: familiarity generates accommodation.

If you want to invest in something you already know, it is crucial that you police yourself during your analysis. When we are familiar with something, we often don't notice the weaknesses.

The enterprising investor

Enterprising investors base their strategy on research and continuous monitoring of stocks, bonds, and mutual funds.

Their continuous action in being attuned to the stocks provides them with a wide range of opportunities to take, including in international spheres.

The author Benjamin Graham explains that investing in foreign stocks guarantees certain security in case your country is going through a crisis, for example.

However, this active approach may present some risks that the investor should be aware of:

  • The ambition to invest, buy, and sell stocks can make you fall into harmful investments if not carefully studied;
  • The more you trade, the less you save.

Graham explains in his book, "The Intelligent Investor", one of his most important rules for investing: the stock should only be bought if you get a deal of your interest cheaply. This does not depend on how many people are interested in this stock.

You can't beat the pros in their game; neither they win

And it's true. When we think of investing to beat someone, their stocks are no more than hostages in the system. The issue isn't in who wins or who loses but in the internal focus. It's important to control yourself at the game.

According to author Benjamin Graham, one of the secrets of the intelligent investor is to never base success on the performance of others. You must invest in a way that meets your needs.

Having discipline and setting clear goals are essential for any investor. In fact, you can't control the market, but you can control your behavior to do well in trading.

Some tips shared in the book "The Intelligent Investor" are listed below:

  • Negotiate patiently and cheaply, controlling your brokerage costs;
  • Ownership costs can be controlled by avoiding excessive mutual fund expenses;
  • Set realistic expectations, do not deceive yourself with fantasies;
  • Balance your assets to know how to control your risks;
  • Your tax bills can be controlled by holding stocks longer to reduce capital-gains liability.

How, where, and why should you hire an adviser?

As it is affirmed in the book "The Intelligent Investor", most investors have performed their functions independently. On the other hand, others see the importance of a second perception of their business, to get better planning. No one is wrong, quite the opposite.

Consolidating your career alone is certainly rewarding. But you shouldn't be afraid of looking for help, especially in cases of big losses, budget limits or until you adapt to the changes in the market.

A trusted advisor can be found starting with people you know well. You must pay attention to find someone honest and qualified because in the market there are scammers ready to fool you.

The author Benjamin Graham exemplifies some types of approach that you can adopt when hiring an advisor, paying attention:

Choice of stocks

Successful investors have discipline and consistency with their strategy, besides reflecting on their trades.

We have seen that defensive investors are not very close to decisions that require their effort. Therefore, the author Benjamin Graham says, in his book "The Intelligent Investor", that you don't need to choose your own shares.

Today's investors can buy an index fund that holds back their choices. Graham says that, in the beginning, you must separate 90% into the index fund, and keep the rest of your savings with you, to also have the autonomy to make your own choices.

However, some investors like to venture. The author states that training is essential. You can make mistakes, but the good part is learning from the victories (and the defeats) and developing discipline and technique to better invest.

The intelligent owner

According to the book "The Intelligent Investor", current investors have focused on selling and (mainly) buying shares. In the meantime, they haven't cared about ownership at all.

Benjamin Graham emphasizes that when a stock is bought, you are one of the owners of the company, even if you own only 10% of the shares.

This point that Graham wants to arouse in people says a lot about those who want to be an intelligent investor, but don’t act as an intelligent owner. However, your money is involved.

He states that you should check the results provided by the managers and disagree with the other owners when something bothers you. But it is important to have already read the proxy statement for your action, otherwise, you will not know where to invest your money.

Books about money and investments

In the book "Unshakeable", Tony Robbins gives valuable advice: if you're not careful, taxes can easily eliminate 30% or more of your investment returns. Therefore, it is important to pay attention only to the net amount that you will be able to keep.

For the author of the book "The Dumb Things Smart People Do With Their Money", Jill Schlesinger, people should not invest their money in what they don't know. It is necessary to have good planning and in-depth knowledge of where you are going to invest. Also, it is important that the investment makes sense to your life purpose in some way.

Finally, Napoleon Hill, author of the book "Think and Grow Rich", says that the first step in becoming rich is to have a strong desire. It may seem simple, right? But that desire has to be a real "fire in the belly", with a good deal of persistence.

So, how can I be a successful investor?

Apply these investment's suggestions proposed by the author Benjamin Graham:

  • Avoid short-term trading;
  • Hire an adviser;
  • You have rights over the company when you own its stocks. If something is disturbing you, you should talk to the other directors;
  • Study about the stock you want to invest;
  • Consider investing in index funds;
  • Be realistic: do not set up fanciful and utopian expectations.

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